US embassy cable - 04PRETORIA4936

UNCLAS SECTION 01 OF 02 PRETORIA 004936 
 
SIPDIS 
 
DEPT FOR AF/EPS/DKRZYWDA AND AF/S/TCRAIG AND KGAITHER 
COMMERCE FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND 
TREASURY FOR GCHRISTOPULOS, LSTURM, AND AJEWEL 
DEPT PASS USTR FOR PCOLEMAN 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECPS, ETRD, ECON, EINV, SF 
SUBJECT:  SBC TO SELL TELKOM SHARES, EXIT SOUTH AFRICA 
 
 
(U) Sensitive but unclassified.  Not for Internet 
distribution.  Please protect accordingly. 
 
1. (SBU) SUMMARY.  U.S. telecommunications firm SBC 
Communications and Telkom Malaysia announced November 8 that 
they would sell their remaining interest in Telkom SA and 
exit South Africa.  An empowerment consortium led by senior 
ANC officials and influential empowerment figures (Andile 
Ngcaba, Smuts Ngonyama, and Gloria Serobe) will acquire the 
shares no later than November 15 pending agreement of a 
purchase price.  A source close to the deal said that 
Ngcaba, former Department of Communications Director- 
General, is conspiring to become CEO of Telkom.  While 
industry analysts say that the deal will raise Telkom's 
black economic empowerment (BEE) profile, critics complain 
that it will benefit only a small, black elite.  END 
SUMMARY. 
 
2.  (U) U.S. telecommunications firm SBC Communications and 
Telkom Malaysia announced November 8 that they would sell 
their remaining interest in Telkom SA, ending months of 
speculation.  SBC and Telkom Malaysia hold 15.1 percent of 
Telkom SA through their Thintana Communications joint 
venture.  SBC controls 60 percent of Thintana while Telkom 
Malaysia owns 40 percent. 
 
3.  (SBU) In June, Thintana reduced its Telkom holdings from 
30 to 15.1 percent and agreed to retain its remaining stake 
until the November quarterly reports.  SBC recouped $543 
million from the June sale, almost 72 percent of its 
investment of $756.6 million in 1997.  Privately, SBC 
officials told Econoff that they were "very pleased" with 
the results of the June sale and said it bode well for SBC's 
eventual disinvestment from Telkom.  They also indicated at 
the time that corporate policy to reduce overseas holdings 
would likely lead to SBC's complete divestment from South 
Africa this year. 
 
4.  (SBU) Since that time, Thintana has been quietly 
negotiating with a consortium of empowerment groups led by 
senior ANC officials and influential empowerment figures.  A 
group shareholder told Econoff that the consortium dubbed 
"Project Elephant" consists of a group known as "Project 
Lion" led by former Department of Communications Director- 
General Andile Ngcaba and another group of investors called 
"Project Buffalo" headed by ANC spokesman Smuts Ngonyama and 
ANC Women's League member Gloria Serobe. 
 
5.  (SBU) Consortium and SBC officials were in Dallas 
negotiating terms of the deal when the Minister of 
Communications announced on September 2 that the industry 
would be liberalized in February 2005.  Telkom stock prices 
tumbled to R72 (NYSE $47.80).  Anticipating that Telkom 
prices would rise again, the consortium shareholder said 
that he then encouraged consortium officials to lock in a 
purchase price at R75 per share, but was rebuffed.  The 
consortium now faces stock prices of more than R93 (NYSE 
$56.74).  The sale is contingent upon the consortium 
finalizing a purchase price by November 15.  Otherwise, 
Thintana will sell its shares on the open market beginning 
November 16. 
 
6.  (SBU) Under terms of the deal, the consortium will 
acquire the special class B ordinary share in Telkom held by 
Thintana which will give it certain rights as a strategic 
equity investor, including potential seats on the Board of 
Directors and senior executive positions.  Although Telkom 
has the right of first refusal on the shares, a Department 
of Communications source told Econoff that it is a virtual 
surety that Government will not exercise that right.  A 
source close to the deal told Econoff that Andile Ngcaba is 
conspiring to lead Telkom and has a strategy in place to use 
this acquisition as a springboard to replace current Telkom 
CEO Sizwe Nxasana. 
 
7.  (U) While industry analysts say that the deal will raise 
Telkom's black economic empowerment (BEE) profile, critics 
complain that it will benefit only a small, black elite.  A 
front-page editorial in Business Day's November 10 edition 
criticized the deal, calling it "an insult to the poor."  It 
slammed President Mbeki, Finance Minister Manuel and Public 
Enterprises Minister Erwin for not seizing this opportunity 
to redistribute the wealth of Telkom to South Africa's poor. 
 
FRAZER